The Bank of Japan (BOJ) is likely to keep interest rates unchanged at its upcoming policy meeting next week as officials aim to gather additional time to assess global risks and the wage growth outlook for 2024.
Although some policymakers believe the conditions for a rate hike might already exist, others prefer to wait and gather more data on whether wage growth will result in sustained, inflation-driven price increases. This caution diminishes the likelihood of a rate hike in December but raises the possibility of action at the BOJ’s meetings in January or March.
The BOJ’s policy decision, scheduled for December 18-19, will come shortly after the U.S. Federal Reserve’s meeting. A surprise decision by the Fed, such as holding rates steady and triggering a dollar rally, could lead the BOJ to act to counteract potential yen depreciation.
Currently, many BOJ officials are taking a cautious stance due to the lack of significant inflationary pressures. Government officials have also signaled caution about implementing rate hikes too soon.
The BOJ raised rates to 0.25% in July, marking the end of its negative interest rate policy earlier this year. While the central bank remains hopeful about Japan’s moderate economic growth, steady wage increases, and inflation staying above its 2% target for over two years, officials are eager to proceed carefully. They aim to avoid signaling urgency, particularly as the yen’s recent recovery has helped alleviate import price pressures.
Next year’s corporate wage negotiations are expected to be a focus for the BOJ, with its January 23-24 meeting likely offering greater insight into the bank’s interest rate plans.
Adding to the uncertainty is the unpredictability of economic policies under U.S. President-elect Donald Trump, further complicating the BOJ’s decision-making.
Markets currently place less than a 30% chance on a December rate hike, contrasting with the views of over half the economists surveyed, who expect the BOJ to raise rates next week. Around 90% of those polled predict the BOJ will hike rates to 0.5% by the end of March.
